Having established a safe shipping method, Ivernia (IVW-T), which owns the Magellan lead mine in Australia, is resuming lead concentrate shipping, but the mine remains closed.
“We have been working for almost two years on the lead removal plan for the port of Esperance,” says Ann Candelario, director of investor relations and corporate communications. “On December 23 we announced that we had government approval to go ahead and implement that lead removal plan.”
The company stopped shipping concentrate in March 2007 after it was discovered that the loading of bulk concentrate in the port of Esperance caused lead pollution. The pollution was initially detected from two bird fatalities as a result of lead poisoning. Ivernia placed the mine on care and maintenance a month later.
Candelario says that the company has solved the problem by shipping the concentrate in sealed double bags inside shipping containers, which will be trucked from the mine and then shipped by rail to the port of Fremantle, a container port.
At present, Ivernia’s staff is bagging the 8,000 tonnes of bulk lead carbonate concentrate which was stranded for almost two years at the port of Esperance. This is anticipated to be completed in April, at which time the bagging equipment will be moved to the mine, and the shipping of 21,000 tonnes of lead carbonate concentrate through Fremantle will start. The packing and shipping of concentrate will be monitored and reported on by an independent environmental auditor.
Ivernia has also agreed to pay the government of Western Australia A$9 million for an environmental clean-up of the port and town of Esperance. The payment will be spread over three years, and is dependent on Ivernia’s earnings, in that the agreement allows the company to pay the government as it earns revenues from lead sales. Ivernia will also contribute A$1 million over three years to a community fund in Esperance, to be used for community projects.
Candelario says that shipping of lead concentrate through Fremantle will continue for the rest of the year, during which time the company will work on a restart plan for the Magellan mine. But the mine will only be restarted if it can operate at a profit. It remains to be seen whether Ivernia can mine lead profitably at current prices, US51¢ per lb. at presstime.
In December, Patrick Scott, executive vice-president and chief operating officer, who was based in Sydney, has resigned, and his duties were assumed by Alan De’ath, the company’s president and CEO. Candelario says that this was done to cut costs.
Magellan is 30 km west of Wiluna, Western Australia. Concentrate production from the mine is subject to a 5% state government royalty.
According to a resource estimate for Magellan from December 2007, at a cutoff grade of 2.1% lead, measured and indicated resources are 21.5 million tonnes grading 4.9% lead, equivalent to 1.05 million tonnes lead, while inferred resources are 10.2 million tonnes of 4% lead, for 410,000 tonnes lead.
A January 2008 estimate of Magellan reserves, which are included in the resources reported above, uses a 2.1% lead bottom cut, and a lead price of US$2 per kg (about 75% higher than the current price). The estimate puts proven and probable reserves at 14 million tonnes grading 5.7% lead.
Candelario says that the company has a US$20 million convertible note which matures on April 27. Ivernia’s chief financial officer, Robert Wickham, is leading efforts to restructure the note or refinance it.
For the nine months ending Sept. 30, Ivernia did not generate revenues, and lost US$15.9 million. Cash and equivalents were US$16.7 million. Lead concentrate inventory (not included in cash and equivalents) was valued at US$14.8 million. Current liabilities stood at US$22.8 million, and long-term liabilities were US$12.5 million.
A company has sued Ivernia for A$2.8 million, disputing the validity of the force majeure clause invoked by Ivernia when closing the mine. The company is defending the lawsuit. In addition, the Australian government has required the company to post an A$5 million bond prior to resuming lead concentrate shipments. On Sept. 30, the bond has not yet been posted.
The financial statements do not include the A$9 million to be paid for the environmental clean-up, or the A$1 million to be contributed to Esperance. In addition, the US$14.8 million in lead concentrate inventories has fallen in value since September, so it will likely be written down to some extent.
The company has 180.2 million shares outstanding, and 188.4 million shares fully diluted. At presstime, the shares were trading at 13.5¢. The shares have been trading in a 4¢-$1.85 range over the last 12 months.
“Obviously, it’s been arduous for the company,” says Candelario. “The issues of the last few years have certainly been resolved, and when we restart, the sealed shipment process is going be a tremendous asset for us. It’s state-of-the-art, and it’s just where we are going to be focused.”
“It’s just going to be nice to be getting back to business,” Candelario says, “and have management focus on moving forward.”
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